A recent NYTimes (April 10, 2016) profiles the Wendel family – NY real estate tycoons who avoided publicity and luxury, refused to sell their holdings and drove the city crazy. According to the article by Julie Sadow, the Wendels owned more than 150 properties in NYC which would be valued today at more than $1billion. The family (six sisters and a brother)- all unamrried, lived together in a shuttered mansion at Fifth Avenue and 39th Street. Their financial strategy was never mortgage property, never pay for repairs and never forget that Broadway moves uptown at a rate of 10 blocks a decade. In their day they paid more real estate taxes than anyone else. Sometimes they would have buildings sit vaccant if they could not find the tenant they wanted. They refused to rent to saloons, restaurants or theaters. Sometimes they were generous deeply discounting rents for those who could not afford it or keeping a vacant lot for children as a playground. According to the article in the Times after the parents death the brother lorded over his sisters and opposed any matrimonial unions as it would disperse the family wealth- only one sister ever married and it was after her brother’s death. She was too old to have children. The last surviving sibling left the fortune to charities. 2003 “relatives” came forward to challenge the estate.
One can only wonder what the intended legacy was – survival of the immediate family differs from dynastic survival, dispersion to charities is not a perpetual foundation. It is fascinating that a family can have the fortiutde to build this dynasty, not see the parth to family survival, the impact of procreation or the ability to hold dynastic wealth together as what would have appeared to have been a signficant part of their legacy.

Leona Helmsley, shown in 1990, left most of her billions to charity when she died in 2007.

Leona Helmsley, shown in 1990, left most of her billions to charity when she died in 2007. Photo: Associated Press

By Peter Grant

Updated Jan. 21, 2016 5:32 p.m. ET

NEW YORK-Nine years after Leona Helmsley died, a battle over her estate erupted Thursday in a New York court. The state attorney general said a $100 million fee sought by the estate’s executors, including two of Mrs. Helmsley’s grandchildren, is “astronomical” and should be cut, potentially by about 90%.

Mrs. Helmsley, a onetime owner of a sprawling property portfolio that included the Empire State Building, left most of her $4.78 billion fortune to charity when she died in 2007. The four executors of her will in 2014 petitioned the estate for the fee to cover their work thus far.

The office of New York Attorney General Eric Schneiderman on Thursday challenged the executors’ petition, calling the more-than-$6,000 hourly rate it amounts to “exorbitant,” according to a filing in New York Surrogate’s
Court.

The attorney general’s charities bureau has the power to contest the executor fees to ensure the amount the charity receives isn’t diminished by “excessive and unreasonable expenses,” the filing states.

The filing asks that a more reasonable amount be set. It suggests one method of calculating under which the fees would be less than $10 million.

The battle marks the latest twist in the unwinding of a real-estate fortune built by Harry Helmsley over a half century. Other issues have included a challenge to Mrs. Helmsley’s will by two of her grandchildren who were cut out of it and the inclusion in the will of $12 million for her dog, Trouble, which eventually was reduced to $2 million.

Mrs. Helmsley served 19 months in jail on tax-evasion charges and garnered a reputation for mistreating her staff.

The four executors of her will include two of her grandchildren from her first marriage, David Panzirer and Walter Panzirer as well as one of her lawyers, Sandor Frankel, and John Codey, a business adviser. Mr. Codey figured in a 2001 page one article in The Wall Street Journal about Mrs. Helmsley and one of her suitors after her husband’s death in 1997.

In a statement released Thursday, a representative of the executors defended their $100 million request, noting that they “administered an extraordinarily complex estate.in the face of enormous risks.” The statement also said that the executors enhanced the estate’s value “by hundreds of millions of dollars” despite the economic downturn that caused real-estate values to plummet after Mrs. Helmsley’s death.

The attorney general’s Thursday filing points out that time records show that the executors spent 15,535 hours on estate matters, making their request for $100 million equivalent to a rate of $6,437 an hour. “By any definition, this hourly rate is exorbitant, unreasonable and improper,” the filing said.

The court earlier awarded the executors $7.2 million in fees as an advance payment. Nothing has been paid since because the attorney general’s office in late 2014 asked the court to hold off paying the full $100 million until it could review the request.

Mrs. Helmsley, who died at the age of 87, left most of her fortune to a charity, Leona M. and Harry B. Helmsley Charitable Trust. Her will included $15 million for her brother, the late Alvin Rosenthal; $10 million each for David Panzirer and Walter Panzirer, and $12 million for Trouble.

Two other grandchildren, Craig Panzirer and Meegan Panzirer Wesolko, received nothing. They contested the will and ended up getting $3 million each, according to people familiar with the matter. The two couldn’t be reached for comment.

The fight over executor fees stems in part from the will’s lack of clarity. The document expressly rules out the executors getting the statutory commission based on the estate’s assets, according to the attorney general’s filing.

The filing describes that provision of the will as a “prudent decision” because the statutory commission would have come to about $200 million, an amount that “would far exceed the reasonable value of the executors’ services.”

But the will doesn’t specify how the executor fees should be calculated, according to the attorney general’s filing. That means the executors “are entitled only to reasonable compensation for the services they actually rendered to the estate and nothing more,” the filing said.

Any resolution will center on the question of what is reasonable. The 2014 affidavit filed by the executors points to out how challenging it was for them to handle more than 80 stakes in real estate in 17 states and the District of Columbia, hundreds of individual bond issues, and hundreds of other pieces of personal property. The real estate included such trophies as the Empire State Building and Park Lane Hotel, garden apartments in White Plains, N.Y., and Wal-Mart Stores Inc. WMT 1.71 % properties throughout the country.

Complicating the executors’ task was the financial downturn and Mrs. Helmsley’s “personal notoriety,” the affidavit said. The executors contended that under these “unprecedented, extraordinary and exceptionally difficult” conditions they achieved enormous savings for the estate by doing such things as keeping taxes to a minimum and waiting for opportune times to sell such assets as the Park Lane.

“The executors confronted innumerable challenges and problems which were addressed successfully, all to the enormous benefit of the Charitable Trust,” the affidavit states.

The attorney general’s filing calls the affidavit “misleading” because it creates the impression that the executors were at the center of the real estate deal-making. In fact, they were “primarily reviewing information, analyses and recommendations prepared by their consultants and counsel,” the filing says.

The attorney general’s filing asks the court to appoint a neutral expert to advise on the “reasonable value” of the executors work.

As an alternative, the papers provide an analysis of what reasonable compensation should be based on the amount of hours the executors worked. That analysis concludes the four executors worked a total of about 15,535 hours and that a fair rate of payment would be $628 an hour based in part on what senior executives at the company were being paid at the time of Mrs. Helmsley’s death.

Mrs. Helmsley left instructions in her will that the fortune be spent on “purposes related to the provision of care for dogs” but a judge ruled that the trustees could give the money away as they saw fit. The trust had made $1.42 billion in grants as of March 2015 to charities including nonprofit organizations involved in health care and education. The four executors of
the Helmsley estate also are the trust’s four trustees, according to its 2014 annual filing.

Patricia Annino is a sought after speaker and nationally recognized authority on women and estate planning. She educates and empowers women to value themselves and their contributions in order to ACCOMPLISH GREAT THINGS in the world – and in so doing PROTECT THEMSELVES, those they love, and the organizations they care about. Annino recently released an updated version of her successful book, Women and Money: A Practical Guide to Estate Planning to include recent changes in the laws that govern how we protect our assets during and beyond our lifetime. To download Annino’s FREE eBook, Estate Planning 101 visit, http://www.patriciaannino.com.

The Detroit Institute of Arts announced Tuesday that a former volunteer at the museum gift store left the DIA $1.71 million in her will.

Elizabeth Verdow, who died in 2014 at age 86, was a former Detroit Public Schools art teacher who volunteered at the museum from 1990-2009. The Farmington Hills resident was a graduate of Albion College and apparently a devotee of contemporary art.

“We are humbled by Elizabeth’s longtime dedication to and support of the DIA,” said museum Director Salvador salort-Pons in a prepared statement. “We are deeply grateful and moved.”

Museum officials said Verdow was unmarried, had no children, and no close relatives.

Verdow’s will stipulated that three-quarters of the money, or $1.26 million, be used to buy new contemporary painting and sculpture. The remaining $450,000 will go into the museum’s operating endowment.

Retired museum store manager and buyer Anna Helkowsky remembered Verdow as a quiet, unassuming woman who was a pleasure to work with.

“She was part of what I called my ‘Sunday sunshine’ crew,” Helkowsky said. “Elizabeth came in, and whatever I needed, she would do.”

She was aware Verdow loved the museum, Helkowsky added, “but I did not know the extent of her passion. And who knew she had this much money?”

Verdow’s name will go up on the Robert S. Tannahill Society donor wall, and any art acquired with her funds will have the source noted on the gallery label.

Patricia Annino is a sought after speaker and nationally recognized authority on women and estate planning. She educates and empowers women to value themselves and their contributions in order to ACCOMPLISH GREAT THINGS in the world – and in so doing PROTECT THEMSELVES, those they love, and the organizations they care about. Annino recently released an updated version of her successful book, Women and Money: A Practical Guide to Estate Planning to include recent changes in the laws that govern how we protect our assets during and beyond our lifetime. To download Annino’s FREE eBook, Estate Planning 101 visit, http://www.patriciaannino.com.

CRUT are donations which combine lifetime income with charitable donations, i.e., they combine annuity payments to the donor with a charitable contribution. These gifts are one of the most tax efficient ways of donating money to an institution. The grantor makes a contribution to the Trust and receives a tax deduction (based on a Treasury calculation regarding the amount to be left to charity).

The trust is usually funded with low basis assets because the sale of the stock within the Trust does not trigger capital gains taxes. The beneficiary of the trust receives an annuity. Taxes are paid by the beneficiary only when funds are withdrawn from the CRUT. Assets remaining after the life of the Trust go to charity. [Source: Ann Kaplan. 2010.”Philantropic Planning” Smith College, October 20, presentation]

CLAT (Charitable Lead Annuity Trusts)

CLAT combine wealth transfer to heirs with charitable giving and are another tax efficient way of donating money to an institution. They are comprised of the remainder of the estate after the heirs receive a specified amount and allow the donor to make a contribution to a trust and receive an immediate tax deduction.

An annual amount, established using the treasury rate in effect at the time the CLAT is established, would be paid to the institution. The difference between the charitable annuity payments and the investment results will transfer to heirs at the termination of the CLAT. During life of CLAT, annuity payments are distributed to charitable vehicles or institutions as scheduled when CLAT is established. (Source: Ann Kaplan. 2010, “Philanthropic Planning,” Smith College, October 20, presentation.)

Patricia Annino is a sought after speaker and nationally recognized authority on women and estate planning. She educates and empowers women to value themselves and their contributions in order to ACCOMPLISH GREAT THINGS in the world – and in so doing PROTECT THEMSELVES, those they love, and the organizations they care about. Annino recently released an updated version of her successful book, Women and Money: A Practical Guide to Estate Planning to include recent changes in the laws that govern how we protect our assets during and beyond our lifetime. To download Annino’s FREE eBook, Estate Planning 101 visit, http://www.patriciaannino.com.

One of the most effective ways to educate donors and help them achieve financial literacy is through sustained and focused donor education programs. The process of understanding the power of philanthropy and how it works best for a donor’s goals and objectives takes time. When donors learn together, share their ideas and understand what other donors have done and are doing, they become more comfortable with the process.

Donor education programs which focus on philanthropy and related topics, such as financial issues for women, can teach both men and women how to achieve the joy of giving while living. Your institution can incorporate into the donor education event faculty and student presentations which integrate messages into the mission of your institution. These programs can help differentiate/distinguish your institution and create deeper relationships with donors, alumnae, and alumni spouse (Women’s Philanthropy Institute 2009, 15). (8)

Effective donor education, combined with financial literacy, can also provide networking opportunities. Associating with women of similar financial standing increases their willingness to use their money to leave a legacy. This is especially relevant for women who are learning to be comfortable with their wealth. Many baby boomer women in this country will inherit twice—once from their parents and once from their spouse. Nevertheless, donors will not give until they know that they can take care of themselves first. As an estate planning attorney, the most common question I hear from a new widow is, “Do I have enough money to live on?” (Of course that question should be asked many years before that moment in time.) Taking the time to systematically educate your women donors, to help them achieve financial literacy, to teach them that by gifting they can reap both current and future rewards will help empower them to act when they receive their “double inheritance.”

Patricia Annino is a sought after speaker and nationally recognized authority on women and estate planning. She educates and empowers women to value themselves and their contributions in order to ACCOMPLISH GREAT THINGS in the world – and in so doing PROTECT THEMSELVES, those they love, and the organizations they care about. Annino recently released an updated version of her successful book, Women and Money: A Practical Guide to Estate Planning to include recent changes in the laws that govern how we protect our assets during and beyond our lifetime. To download Annino’s FREE eBook, Estate Planning 101 visit, http://www.patriciaannino.com.

Figuring out what you want: The following questions are designed to help you know yourself and to form a basis for discussion with the person you choose to execute your health care power of attorney.

The pleasures of health: How essential are these capabilities to your happiness? (i.e. are they, vital, important, mildly important, not important)

Walking

Enjoying the outdoors

Eating, tasting

Drinking

Reading

Attending religious services

Listening to music

Watching television

Avoiding pain and discomfort

Being with loved ones

Touching

Being self-sufficient

Fear factors: What are your biggest concerns about the end of your life?

Spirituality: How much of your comfort and support comes from religion? From personal prayer? From interaction with clergy?

End of life: If you had the power to decide, what would the last day of your life be like? Where would you be? With whom? What would you be doing? What would your final words be?

Assistance preferences worksheet: It is useful to discuss with your health care agent (and family members as well) the types of assistance you might want, should you need help, and to revisit this issue from time to time, because your preferences could very well change. Looking at each of the different scenarios spelled out below, think through what your preferences would be by asking yourself the following questions:

Would I still want to live at home?

Would I want caregivers hired to help me out in my home?

Would I want to be taken to a rehab or assisted living center?

Would I want family members to care for me?

Would I want to live with one of my children?

Would I want one of my children or a relative to live with me?

Would I want my health care agent to make these decisions for me?

Would my answers differ if my spouse were still living at home?

If you were unable to drive a car

If you were unable to climb stairs

If physical problems prevented you from being able to dress yourself

If you had to use a wheelchair because you were no longer able to walk

If you were unable to leave your home

If your vision were seriously impaired

If your hearing were seriously impaired

If you needed kidney dialysis

If you needed chemotherapy

If you were in physical discomfort most of the time

If you could no longer control you bladder

If you could no longer control your bowels

If you could not think clearly

The more you take the time now not only to think through whom you wish to choose as a Health Care Proxy, but also how that person would address these future scenarios, the more likely your wishes will be honored in the future.

Make sure (especially if you are in a second marriage) that you have coordinated the person chosen as your Health Care Agent with the person named as your Trustee and/or your Attorney in fact under a Durable Power of Attorney so that the decisions about your medical care and how to pay for it are coordinated.

Patricia Annino is a sought after speaker and nationally recognized authority on women and estate planning. She educates and empowers women to value themselves and their contributions in order to ACCOMPLISH GREAT THINGS in the world – and in so doing PROTECT THEMSELVES, those they love, and the organizations they care about. Annino recently released an updated version of her successful book, Women and Money: A Practical Guide to Estate Planning to include recent changes in the laws that govern how we protect our assets during and beyond our lifetime. To download Annino’s FREE eBook, Estate Planning 101 visit, http://www.patriciaannino.com.

From left, Paula Zahn, Sanford Weill, and Joan Weill at the opening night gala of Carnegie Hall’s 116th season, held at the Waldorf Astoria. Credit Christopher Smith for The New York Times

If you take a tour of some of New York’s most notable cultural and medical complexes, you are bound to encounter — and re-encounter — one prominent family name.

There is Weill Cornell Medical College on the Upper East Side, where numerous buildings carry the names of its two longtime benefactors, Joan Weill and her husband, Sanford I. Weill ; the latter was the chairman of its board of overseers until the end of 2014. Across town, there is Weill Recital Hall, the 268-seat theater at Carnegie Hall, named after the couple when Mr. Weill helped lead a $60 million fund-raising drive for the concert center in the mid-’80s.

Farther west and a few blocks down is the Joan Weill Center for Dance – Alvin Ailey’s eight-floor, 12-studio complex, opened in 2005 – which bears the name of its former chairwoman, who stepped down last year. (There is even the Joan and Sanford I. Weill Hall, a theater at Sonoma State University, in Rohnert Park, Calif., and the Joan and Sanford I. Weill pediatric hematology-oncology department at the Rambam Health Care Campus in Haifa, Israel).

But one place that will not bear their name is on the campus of Paul Smith’s College, in upstate New York, close to where the couple owns a home. For a brief spell this last year, the school was on the verge of being named Joan Weill-Paul Smith’s College, courtesy of a promised $20 million donation from the Weills.

Things there hit a snag. The college was created with money and land bequeathed by its founder, Phelps Smith, to honor his father, a local hotelier. When Phelps died in 1937, his will stipulated that the school be built on the site of the former Paul Smith’s Hotel. The will also required that the institution be “forever known” as Paul Smith’s College of Arts and Sciences.

The college, which has a student body of about 1,000, argued that it was so financially strapped (operating at a loss as recently as 2013) that it needed to be released from this restriction in order to safeguard its future.

While some people immediately objected to the name change, Cathy S. Dove, the college’s president, posted an open letter on the college website, praising the Weills and arguing for the name change.

“Joan and Sandy are presenting us with an opportunity to solidify the long-term financial health of our school,” Dr. Dove wrote. “Joan and Sandy are held in high esteem among the world’s most generous philanthropic and educational circles, and her name will bring us new opportunities to introduce our school to other supporters of higher education.”

But in October, a judge ruled that the college had not offered enough evidence to prove it could not survive financially without a name change and blocked the agreement to do so. A few weeks later, the college announced that the Weills would no longer donate the $20 million.

“It was a naming gift, so without the court allowing us to go forward, there was no money,” said Bob Bennett, Paul Smith’s spokesman. “That was the deal, right from the beginning.”

“I think it’s unfortunate that the Weills are not going to give the money,” Mark Schneider, a lawyer who represented alumni who opposed the name change, told The New York Times after the offer was rescinded. “If they really wanted to give a gift to the school, it shouldn’t be contingent on something as self-glorifying as naming the school after Mrs. Weill. They could have named something else.”

“I find it in sort of bad taste,” he added.

It was an ignominious and messy moment for a couple whose social prominence and philanthropic largess were well known, dating back to when Mrs. Weill and her husband, who is known as Sandy, began to make their ascent up the rungs of the city’s financial and cultural institutions.

The recent setback at Paul Smith’s, and the damage it seemingly has done to the couple’s reputation, is largely undeserved, friends say.

The theater producer Daryl Roth, who has gotten to know Mrs. Weill at Alvin Ailey, cautioned that one possible misstep in a lifetime of charitable giving should not cement a reputation that took more than 60 years to build.

“They’re really good people,” she said of the couple. “It upsets me when there’s this kind of finger-pointing.”

“They have been basically excellent examples of people who were fortunate enough to succeed and used it for the betterment of society,” said Kenneth J. Bialkin, who is on the board of directors at Carnegie Hall, and was Mr. Weill’s legal counsel for much of his 50-year career in the financial services industry.

Neither Mr. nor Mrs. Weill would respond to several requests for comment, nor did most of the people associated with the institutions they have contributed to over the years.

If Mr. and Mrs. Weill have given back an enormous amount, it is partly because they know what it is like not to have the world handed over on a silver platter.

Mr. Weill grew up in Brooklyn in the 1940s. His father, Max, ran a dressmaking business and then a steel importing company. His mother, Etta, was a housewife. Max’s successes were overshadowed by financial setbacks. The marriage to Etta frayed, before resulting in divorce. Max was constantly spending too much money on clothes and cars.

As a teenager, Mr. Weill was determined not to be like his father, but he also shared with him a propensity to get too close to the sun, alternating between tremendous self-discipline and moments of sloppiness.

Weill Cornell Medical College, on the Upper East Side of Manhattan. Credit Michael Kirby Smith for The New York Times

Faced with dropping grades as a teenager, he was shipped off to military school, where he shaped up and got into Cornell University, according to his 2006 memoir, “The Real Deal: My Life in Business and Philanthropy.” At Cornell, he joined a fraternity, began driving around in a yellow convertible and nearly flunked out during his freshman year.

While on spring break two years later, Mr. Weill received a phone call from his aunt. There was a new girl in the neighborhood who had recently come East from California. Her name was Joan Mosher. She was studying at Brooklyn College and living nearby with her parents.

As he recalled in his autobiography, when he showed up at her doorstep on April 1, 1954, for their first date, her mother looked him up and down, and then walked off to tell her daughter that perhaps she should wear flats instead of heels, so as not to loom over her date.

But the evening went well, and the following year the couple married at a ceremony at the Essex House before 50 friends and family members. Mr. Weill’s father didn’t show up.

At this point, Mr. Weill didn’t exactly have a career plan. But one day, he passed a stock brokerage where the sputtering ticker tape and clanging phones immediately attracted him. So he got a $150-a-month job as a runner at Bear Stearns and began studying to get his brokerage license, which he obtained in 1956.

As it grew over the next two decades, gobbling up other brokerages and ultimately becoming Shearson Loeb Rhoades, Mr. Weill had a fireplace installed in his office on the 106th floor of the World Trade Center, smoking cigars between meals at the company’s lavish dining room, where, according to Monica Langley’s biography “Tearing Down the Walls,” there was a painting featuring Mr. Weill shaking hands with Gerald Ford.

Mrs. Weill, meanwhile, became a trusted adviser to her husband, one his employees came to respect. “It was clear Sandy shared all his concerns and plans and problems with her,” Mr. Bialkin said. “He would never make an important decision without talking it over with her.”

In 1982, Mr. Weill joined the board of Carnegie Hall shortly after selling his company to American Express for close to $1 billion.

With the merger complete, he was due to become the new company’s president. But it didn’t go well, and he wound up being pushed out, gradually stripped of power with nothing but an empty office and a lone assistant.

During his next year of unemployment – before he started building another securities firm into the colossus that became Citigroup – Carnegie Hall served as his unofficial clubhouse.

There, he led the steering committee for the organization that went on to raise $60 million for the restoration of Carnegie Hall, $2.5 million of which came from the Weills’ own pocket. When the renovation was complete, the name on its smaller 268-seat theater became the Joan and Sanford I. Weill Recital Hall.

At a fall gala in 1986, Mr. and Mrs. Weill beamed as they were name-checked from the stage in between performances by Frank Sinatra, Lena Horne, Vladimir Horowitz and Leonard Bernstein.

“Somehow,” Mr. Weill later wrote in his memoir, “it felt even better to give money away than it had to earn it in the first place.”

So they did more of it.

“They’re spectacular,” said Herbert Pardes, the former chief executive of NewYork-Presbyterian Hospital/Weill Cornell Medical Center. “They’re smart as can be, they’re generous as can be, and they’ve been involved. What they did there was not from a distance.”

For Mrs. Weill, the association with Paul Smith’s College – one that had grown over 20 years, during which the couple contributed $10 million for a new library and a student center (both of which were named for her) and raised millions more from other donors – was seen by many as a measure to cement a legacy of her own, one on par with that of her more flamboyant, better-known husband.

But it was not to be.

“The Weills are really wonderful people, and I know they’re disappointed.” said Dr. Dove, the college’s president. “I’m disappointed. Honestly, in every conversation I’ve had with them they’ve continued to say we care about the students, and I don’t think that will ever change.”

Patricia Annino is a sought after speaker and nationally recognized authority on women and estate planning. She educates and empowers women to value themselves and their contributions in order to ACCOMPLISH GREAT THINGS in the world – and in so doing PROTECT THEMSELVES, those they love, and the organizations they care about. Annino recently released an updated version of her successful book, Women and Money: A Practical Guide to Estate Planning to include recent changes in the laws that govern how we protect our assets during and beyond our lifetime. To download Annino’s FREE eBook, Estate Planning 101 visit, http://www.patriciaannino.com.

This strategy can be a win for donors, C corporations, and charities.

By Patricia M. Annino, J.D.

Because of the accumulated earnings tax, a C corporation with significant accumulated earnings can be a problem for a CPA trusted business adviser. Paying the money out as a dividend leads to a second tax the client probably does not want to pay. On the other hand, the longer the company holds the cash and does not use it, the more likely the IRS will impose the accumulated earnings tax.

But if a C corporation owner client is philanthropically inclined and would like to remove the earnings from the company while still maintaining a controlling position of its stock, it may be time to explore a charitable bailout. That’s because this technique can help the donor achieve his or her charitable objectives, avoid capital gains tax, and distribute excess cash that has been accumulated in the corporation tax-free. If the owner’s succession plan involves transferring ownership of the company to his or her children, the owner can also achieve this goal through a charitable bailout.

In a charitable bailout, a corporation’s owner gifts stock in the corporation to a charity, and the corporation then redeems the stock using the corporation’s retained cash. Both the gift of the stock and its redemption are income-tax-free. If the charity is public and if the donor has held the stock for more than one year, the donor is entitled to an income tax deduction for the fair market value of the stock under Sec. 170(b)(1). If the gift is
made to a charitable organization that is not a public charity, the income tax deduction is limited to the donor’s basis in the stock under Sec. 170(e)(1).

Stockholders may choose to donate the stock to a charitable remainder trust for redemption. Normally, if a charity is a private foundation or a charitable remainder trust, a redemption would violate the self-dealing rules. However, a “corporate adjustment” exception (http://www.irs.gov/Charities-&-Non-Profits/Private- Foundations/Exceptions-Self-Dealing-by-Private-Foundations:-Certain-recapitalization-transactions) of Sec.
4941(d)(2)(F) permits redemptions when all stock of the same class as the donated stock is “subject to the same terms” and the charity receives at least fair market value for the stock. To be “subject to the same terms,” the corporation must make a bona fide redemption offer on a uniform basis to the charity and every other stockholder.

Why use charitable bailouts?

The charitable bailout can be very beneficial to all parties involved. It allows a charity to receive cash and a corporation to bail out its accumulated cash while the donor avoids any built-in capital gains tax on the donated stock. The capital gain on the redeemed stock is considered passive income and, as gain from the sale of property, is exempt from the unrelated business income tax (UBIT) under Sec. 512(b).

Charitable bailouts have far better tax consequences than direct donations by a stockholder. If a corporation paid a dividend to the stockholder that the stockholder then contributed to the charity, the stockholder would then owe income tax on the dividend. But, with a charitable bailout, the stockholder can claim the charitable income tax deduction for the donated stock (subject to the 30% and 50% limits of Sec. 170). Though it is the stockholder, not the corporation, who receives credit for the gift, it is the corporation’s cash, not the stockholder’s cash, that is being used. A corporation that has accumulated significant cash will have less cash after a charitable bailout, and thus be less likely to be subject to the accumulated earnings tax.

The charitable bailout technique can also be useful in succession planning. If parents and children all own stock in a C corporation, the parents could reduce or eliminate their ownership stake by contributing their stock to a charitable remainder trust, which stock the company could then redeem. For this strategy to be effective, the children must be stockholders prior to the redemption and the corporation must have sufficient cash to effectuate the redemption. (See IRS Letter Rulings 200720021 and 9338046. Redemption by a note and not cash is a prohibited act of self-dealing).

Potential trouble spots

Advisers and their clients should be aware of several possible pitfalls when using charitable bailouts. One is the imputed prearranged sale doctrine (Rev. Rul. 78-197; Rauenhorst, 119 T.C. 157 (2002); Letter Ruling
200321010). If a stockholder contributes stock in an arrangement in which the charity is compelled to sell the stock, the IRS could take the position that the shareholder had assigned the sale proceeds to the charity, and tax the transaction as if the stock were sold or proceeds distributed to the stockholder. It is worth noting that Rev. Rul. 78-197 states redemption proceeds are taxable as income to the individual stockholder only if the charitable entity is legally bound or can be compelled by corporation to surrender its shares for redemption.

As always, advisers should review state law before recommending a charitable bailout. Also, if the transaction is occurring between related parties, they should be sure to review the charitable organization’s conflict of interest policy.

Note that donor-advised funds, private foundations, and supporting organizations must be mindful of the excess business holdings prohibition and 10% tax under Sec. 4943. This prohibition and tax do not apply to public charities.

In summary, if a client has significant retained earnings in his C corporation and has philanthropic intent, the charitable bailout is a strategy well worth considering.

Patricia Annino is a sought after speaker and nationally recognized authority on women and estate planning. She educates and empowers women to value themselves and their contributions in order to ACCOMPLISH GREAT THINGS in the world – and in so doing PROTECT THEMSELVES, those they love, and the organizations they care about. Annino recently released an updated version of her successful book, Women and Money: A Practical Guide to Estate Planning to include recent changes in the laws that govern how we protect our assets during and beyond our lifetime. To download Annino’s FREE eBook, Estate Planning 101 visit, http://www.patriciaannino.com.

In my 28 years of working with families on their estate plans, many parents have raised the issue of what to do when a child or grandchild struggles with substance abuse. With the recent death of Whitney Houston and her connection to substance abuse, it reminds me of what this means during the estate planning process. These parents are heartbroken and need guidance on how to address this difficult situation in their estate planning documents. Substance abuse – whether it’s alcohol, prescription drugs, or illegal narcotics – affects many of the families we advise. As a result, we developed a list of questions for families to consider when designing their estate plan:

Has the beneficiary ever been diagnosed with a mental illness?

Is the beneficiary having a particularly hard time – is divorce on the horizon? Has he lost his business? Does he gamble?

What is his relationship with other family members?

Who does he trust?

Who is giving him money?

Is he eligible for government assistance?

Who is paying his health insurance?

Is he employed? For how long? What types of jobs?

Has he ever been treated for his addiction?

Is he a member of Alcoholics Anonymous or a similar organization?

Do these issues run in the family?

Has there been a family intervention?

Is he open to counseling? Has this topic been addressed?

Where is he living? Can he live alone?

I have noticed that substance abuse often masks other underlying mental health issues, including undiagnosed or untreated schizophrenia, bipolar disorder, and depression. That these issues are often part of a larger family pattern makes having the discussion much more difficult, but much more essential.

Families in Conflict

An addicted child may have already taken a significant emotional, physical, and financial toll on the entire family. Parents who find it difficult to handle this child become increasingly disturbed when they consider who would step in if they are unable or unavailable. This helplessness often leads to anger, frustration, and conflict.

One parent may want to cut off the beneficiary while the other parent cannot consider doing so. One parent may want to kick the child out of the home, while the other parent believes that doing so would make matters worse. These conflicts add stress to their marriage and the family at large.

Grandparents may have different opinions than the parents. Siblings may already be resentful of their addicted sister or brother. In many families, the troubled child has already received significant emotional and financial assistance. His troubles have already taken center stage at the dinner table. His presence in the home and attitude toward the family may have already created constant disruption.

Estate Planning Tools and Options

As complex and emotional as these issues are, families must address them. And they will welcome having an impartial, yet compassionate advisor to provide guidance, suggestions, and choices.

One planning tool for parents to immediately consider is for that child to designate them as the agent under his health care proxy and his attorney in fact under the durable power of attorney. Without these documents, HIPPA will prohibit the parents from being involved with his treatment. Also, these documents give parents legal access to his health and financial records, which could be extremely important if it becomes necessary to apply for government benefits.

Inevitably, an estate planning discussion will include disinheritance. In my experience, this is a subject frequently discussed and rarely implemented. No matter how angry and frustrated they are, parents still want to provide some sort of safety net for their child.

This pressure to disinherit the troubled child may come from the sense that he has already taken more than his fair share of the family’s resources, possibly at the expense of the other, more responsible children. As the family’s advisor, however, you should ask the parents:

If you are not here, how will the child be cared for with no existing financial resources?

Who will be responsible?

Who will he call?

Will disinheriting him place a financial burden on your other children, or will they be able to walk away?

Establishing a Trust

Rather than disinheriting him, a common solution is to establish a trust that includes him as a permissible beneficiary – or is only for his benefit during his lifetime. The hard decision, however, is who will serve as trustee after both parents die. Parents are understandably reluctant to place that burden on their other children or on other relatives.

If there are significant assets, then choosing a corporate trustee is the simple choice. The other children or trusted friends or advisors can then have the right to remove or replace that trustee during the trust duration. If there are not sufficient assets to warrant a corporate trustee, then the parents must identify friends or trusted advisors – who should be paid for their services. The trustee should review the trust document to ensure that he has the right to resign from his office, and understand the mechanism for subsequent trustee appointments. The document should provide the trustee with the authority to expend funds for purposes such as counseling, detectives, drug testing, and private security.

Trust Terms and Provisions

After deciding on the line of succession and identifying who will operate the trust, parents need to focus on the various purposes for which the trustee may or may not distribute income and/or principal from the trust to the beneficiary.

If the beneficiary is likely to require government assistance, then the terms of the trust must contemplate that. The trust document may also give the trustee authority to withhold payments if deemed advisable. This is often preferable to asking that trustee to determine whether a beneficiary is drug-free. Those suffering from substance abuse can be clever, and making such a determination is tricky.

Rather than withholding payments, another approach is to provide the beneficiary with incentives for staying clean. The trustee could provide additional distributions if the child holds a full-time job or regularly attends counseling sessions. Making the distribution provisions restrictive and under the trustee’s sole control can help protect those assets from the troubled child’s creditors, or from any of the many “friends” and acquaintances who might take advantage of him if they believe there is money in his pocket.

Many parents have a sense of shame or denial, and may rightly choose not to make these troubles public, or put them in a trust document that others can access. I encourage parents to write an annual side letter to the trustee that describes their observations and offers details that they are reluctant to share while living. This letter could be placed in a sealed envelope, kept with the original estate planning documents, and updated/revised as circumstances change. It can be comforting to the trustee to understand more about the parents’ goals and objectives from their own voice.

Planning for the beneficiary with a substance abuse issue is complex and can have consequences that affect the entire family. Remind parents that life is a movie, not a snapshot. A plan created now should be good enough to handle today’s circumstances, yet flexible enough to contemplate the unknown. Encourage parents who are dealing with this difficult situation to revisit their plan every few years as circumstances change and evolve.

Patricia Annino is a sought after speaker and nationally recognized authority on women and estate planning. She educates and empowers women to value themselves and their contributions in order to ACCOMPLISH GREAT THINGS in the world – and in so doing PROTECT THEMSELVES, those they love, and the organizations they care about. Annino recently released an updated version of her successful book, Women and Money: A Practical Guide to Estate Planning to include recent changes in the laws that govern how we protect our assets during and beyond our lifetime. To download Annino’s FREE eBook, Estate Planning 101 visit, http://www.patriciaannino.com.

Do you want to participate in involuntary philanthropy – that is, pay estate taxes and let the government decide what to do with your donations? Or would you rather play an active role yourself in where that money goes? Making a gift to a charitable organization will enable you to help those causes you deem worthy, while at the same time reducing your taxable estate. (See Women & Money, Chapter 14: Protect Your Charity” for information on how to make a charitable gift that qualifies for estate tax deduction).

Gifts to Individuals and Income Tax Issues

You are not entitled to an income tax deduc­tion for a gift to a person, and, in the same way, your gift is not considered “income” to the person you give it to.

When giving property rather than cash, however, each asset has what is known as an “income tax basis” – that is what the asset originally cost (plus, if the asset is real estate, any improvements that have been made to it). When an asset is sold, the owner of the asset will pay a capital gains tax based on the difference between the original cost of the asset and the current sale price.

If an asset is given to someone during the donor’s lifetime, then the recipient of the gift inherits the donor’s income tax basis in the property, and when the recipient sells that property, his gain would be the same as the original owner’s. In other words, if this year your mother gave you $20,000 in stock in Gillette that she had owned for a long time, your mother would not pay any gift taxes on the transfer of stock and you would not be responsible for paying any income taxes. However when, at a later point, you sell that stock, you will incur a capital gain that is equal to the difference between the price your mother bought it for, if she paid for it, or the value of the stock when she received it by inheri­tance or, if she received it by gift, then the income tax basis that was handed over to her and the price you have sold it for.

The rules are different when the gift is made at death. If, instead of gifting you the stock during her lifetime your mother had left it to you in her Will at her death, then the $20,000 would be included in her taxable estate (even if there is no tax then due). When that happens the income tax basis in the stock steps up to the fair market value at the time of your mother’s death. When you later sell that stock, any gain will be based on the differ­ence between its value at the time of your mother’s death and the price you get for it.

In most cases this will significantly reduce the gain. For that reason, many people take care to select for gift-giving during their lives property with lower capital gain and save the property with the greatest capital gain for gifts upon their deaths. That is also why, for fed­eral estate tax purposes gifting is not always tax-wise if the federal estate is under or close to the federal applicable exclusion amount (which at least for 2011 and 2012 is $5,000,000 per person).

Patricia Annino is a sought after speaker and nationally recognized authority on women and estate planning. She educates and empowers women to value themselves and their contributions in order to ACCOMPLISH GREAT THINGS in the world – and in so doing PROTECT THEMSELVES, those they love, and the organizations they care about. Annino recently released an updated version of her successful book, Women and Money: A Practical Guide to Estate Planning to include recent changes in the laws that govern how we protect our assets during and beyond our lifetime. To download Annino’s FREE eBook, Estate Planning 101 visit, http://www.patriciaannino.com.

“Patricia Annino’s book and presentation of, Women and Money, is an engaging discussion of the many legal issues surrounding financial health and wellbeing that women need to know. Through the use of relevant examples, Ms. Annino keeps the “discussion” a lively learning experience. This book, and Ms. Annino’s programs, are a must for women, regardless of their financial capacity!”

Candace HorterUniversity of Oregon

“Patricia presented a dynamic estate planning lecture during a luncheon with the university’s UO Women membership, in Portland, OR, and then addressed a group of development and estate planning professionals at an afternoon reception. The woman has endless energy and enthusiasm for her topic. At both events, our guests were impressed by Patricia’s programs.”

Kim RosenbergRosenbaum Financial

“Thank you VERY much for your outstanding presentation last night to the Estate Planning Council in Portland, OR. I thought your speech was spot on and well presented. It was especially meaningful to me because I have started drafting a book. Many of the stories you highlighted gave me much food for thought.”

Linda ManciniBristol, NH

Og Mandino, Norman Vincent Peale and now comes Patricia Annino. I must admit when I first picked up Cracking the Code I thought, what could I gain from such a short book? A lesson learned, never judge a book by it’s cover………..or size! Cracking the Code contains the key principles for health, wealth and happiness.

Barbara ReinholdEasthampton, MA

As an executive/career coach who has worked with women from Fortune 50 companies to entrepreneurs and artists, I could not recommend Annino’s book more highly. She is a no-nonsense tax-estate attorney with a gentle touch, eager to share what she has learned from watching women of all ages sell themselves short when it comes to money.

Laura ColinAuthor

As an author, I loved the format. It’s easy to read with practical solutions to some common problems for women in family business. As the book shows, you don’t have to take a paycheck to experience the challenges in a family business. Wish I’d had this little jewel 20 years ago when I married a man with loads of family business issues!!! Congrats to the authors.

George F. BurnsPortland, ME

A very helpful and practical guide, based on real experience with both the problems and solutions posed by the complexities of families and business

Judy D.Securities, Inc.

We survey our attendees at the end of the School of Life. On a scale of 1(lowest) to 5(highest), Patricia received a 4.73 from 90 respondents and was among our top speakers. In addition, Patricia was named numerous times in the comment section of “What topics did you find most useful?”

~Ralph J. RotmanCLU, ChFC, AEP

Patricia spoke to a group of women at our Temple in Marblehead, Massachusetts. Patricia has an ability to cover a broad range of topics concerning money and estate planning and motivates her audience to take action. The response from her speech was outstanding as she really engaged the audience.

Patricia Annino was superb. She blends knowledge with humor and the audience really responds. She is skilled at making technical information easy to understand. Women and Money is a must read — Patricia is a must see.